Class D - what cap rate?

[Steve K]

What would you pay for a class D 5 unit property that has gross rents of $2000 / mo, so figure a NOI of 12k per year. I know caps are area specific, but I'm not sure that is as applicable to small D props.

If I wanted to turn something like this quickly would a 15 cap be attractive to many D class investors?

[Bill Gulley]

You can't really get tied up in attempting to assign a cap rate to a class of property, the cap rate is a function of the use of money, your economic considerations and expected income from the investment. The property is rather irrelevant from that standpoint, IMO.

The condition of a property will be reflected in the expected maintenance and vacancy as well as value and these factors already play on the expected income. It is what it is, I suggest you find the market value of the property instead of working things backwards.

You can lower the price and obviously increase the return.

Yes, in my area, 15% would be a good return, 20% would be much better, but why give the farm away at a discounted price to achieve that?.

As to the value, the condition will dictate much of the price along with location. Search about the income approach to valuation as your proprty may lean more in that direction with weak comps. Since a 5 unit is probably odd for comps I'd suggest you look at tri and four plexes and up to 6 or even 8 unit properties that are most similar in location, style, rents, condition and age then make adjustments as needed on a unit basis. Good luck